New Delhi: The skylines of India’s cities—or even its towns and villages—have changed dramatically over the past 10 years, but one of the most striking differences has been the appearance of telecom towers: 30-70 meter-high structures that mostly crown the tops of the tallest buildings.
India’s telecom boom has been well charted. Some 18 years after the mobile phone first appeared on the Indian consumer stage, there are more than 900 million mobile phone users in a country of 1.2 billion—more people than have access to a toilet, according to a statistic often touted by development agencies, and three times the entire population of the US. And the growth of the sector in the last decade has been explosive—in 2002, the number was just 6.68 million. India’s telecom sector is now the second largest in the world, and the fastest growing.
Providing network coverage to these hundreds of millions of users are around 500,000 telecom towers, covering more than 90% of the country’s land area, and unnoticed for the most part by the people who rely on them. Most are made of iron girders painted red and white, with up to six long, bar-shaped antenna pointing skywards, linked with wires to a small shed at the base. A tower connects two callers to each other via switching centres or telephone exchanges, providing urban and rural India with access to mobile communication on a scale second only to China.
On 13 December, the initial public offering (IPO) for Bharti Infratel Ltd closed after being oversubscribed 1.3 times, raising around $800 million (around Rs.4,350 crore today) from the sale of 10% of its paid-up equity in the largest such share sale since Coal India Ltd’s in October 2010.
A subsidiary of India’s largest telecom services provider, Bharti Airtel Ltd, Infratel is known as a “towerco”, responsible for building the telecom towers that transmit signals using spectrum or airwaves for mobile communication. It is the largest of the operator-owned towercos in India (with a 42% economic interest in Indus Towers Ltd, India’s largest towerco) and has a stake in more than 80,000-odd telecom towers around the country. Infratel’s IPO is the latest stage in the rise of a flourishing industry.
Not only do the towers provide a crucial service, they represent an annual Rs.1.36 trillion revenue industry, estimated Analysys Mason, a telecom strategy analysis firm, in a September report for the fiscal year ended March.
An industry in its own right
For India’s economy, mobile phones mean money: for every 10% of the population using basic services (voice and SMS) in the country, national gross domestic product rises by 0.5%, according to a department of telecommunications (DoT) report, and for Internet and other non-voice communications (data), the same penetration adds 1%. It’s not surprising then that the telecom tower sector has become an industry in its own right.
Earlier this year, the government granted towers “infrastructure” status, putting them on the same footing as roads, ports, hospitals and even electricity generation.
“Towers have been brought under harmonization of infrastructure to encourage investments in the sector, which is critical to the growth of the country,” communications minister Kapil Sibal said, announcing the move in October. He added that the capital-intensive industry would need a continuous flow of funds for expansion.
As a result of its new status, the tower industry gets a higher limit on external commercial borrowings with soft lending rates. This means the towercos that borrowed at 12-13% for five-seven year loans can now get loans at 3-4% for 10-15 years. And there’s plenty of potential for the sector to grow. As of 2009, 100% foreign direct investment has been permitted in telecom infrastructure companies, subject to Foreign Investment Promotion Board approval.
The creation of the tower industry, separate from the telecom services sector, arose from the increasing competition among telecom companies (telcos) over the past decade, which led to a price war—mobile phone tariffs are among the rare services in India that have seen prices fall steadily.
By 2000, the telcos desperately needed to find ways to reduce debt on their books and the cost of their operations. The towers were proving expensive at Rs.20-40 lakh each and so the idea of tower sharing, encouraged by the government, became popular. Today, a single tower is often shared by multiple telcos. In Heera Nagar, Gurgaon, a tower run by Viom Networks Ltd is shared by six operators.
Those telcos that owned their own towers, spun them off into separate companies, shifting tower building from their own balance sheets and forming dedicated towercos such as Bharti Infratel and Reliance Infratel Ltd, which has some 50,000 towers, and is owned by Reliance Communications Ltd. The largest of these towercos, Indus Towers, has more than 110,000 towers across the country and is jointly owned by Bharti Airtel (42%), Vodafone India Ltd (42%) and Idea Cellular Ltd (16%), the three largest GSM telcos in the country. The sharing model also prompted the emergence of independent tower companies such as Viom (with around 50,000 towers), GTL Infrastructure Ltd and American Tower Corp. or ATC (with 35,000 and 10,000 towers, respectively). These independent companies had no telecom component and restricted themselves to the building and leasing of towers for a fee of $5,00-8,00 per company per month for typical contracts of 15-20 years. The model was so successful that today only state-run telcos Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd, which together have some 70,000 towers, are yet to separate their tower businesses. While it is not clear whether they will turn the tower divisions into separate companies, the state-run telcos are looking at sharing them to earn additional revenue. “The essence of the tower industry is the sharing model for towers,” said Amit Sharma, president of ATC, Asia. “The capital deployed is much more efficient and it offers considerable savings in opex (operational expenditure). It’s a win-win for the telcos and the towercos.”
“In the early stages of the industry, there was rapid build-up of towers, but very little sharing,” Sharma said. “Over the last few years, the focus has shifted to increasing tenancies and making use of the existing infrastructure, and not building indiscriminately.”
The savings were indeed impressive and they allowed for a further reduction of cost. According to a January report by Analysys Mason, a telco renting 75% of its sites from tower companies can reduce its first-year costs by 60%. Companies kept tariffs as low as 20 paise per minute in some areas, with an average tariff of 25-35 paise per minute across the country.
Building a tower
The process of building a telecom tower is more complex than it might appear. While Indian urban areas have 32% of the population, they also have 63% of mobile phone users.
“In rural areas, most of the towers have a maximum of two tenants,” said a senior executive at one of the larger towercos, who did not want to be named. “Which means revenue is lower as compared to the cities where a tower has five-six tenants.” Rural markets are growing fast, he added.
There are two types of tower requirements: greenfield (for expanding into a new area) and brownfield (to fill a gap in an existing network). Once the choice has been made, it’s up to the network provider to decide on the location. The telcos, along with their network partners, vendors and towerco, come up with a “network design” for a particular region, based on anything from the amount and quality of spectrum available, to the amount of concrete and height of buildings at the location.
The design of a tower must take into account the wind velocity in an area, its proximity to an airport runway and even the curvature of the earth. Each tower must have line of sight with its neighbour, with all of them being arranged in a hexagonal or octagonal pattern. The shorter the tower, the more towers or repeaters are needed to amplify the signal—a particular problem in the Indian context, where operators work with one-tenth of the spectrum that’s available in developed markets and need to serve a much larger user base.
Telecom towers are a lot like real estate—everything depends on the location. Land must be acquired at the exact coordinates where the tower is needed. After the telco has decided on a location, the coordinates are given to the towerco, which checks to see if there are any other towers in the area that can be used. To cut costs, towercos rent the land for a tower on a long-term lease. That brings the challenge of dealing with landlords, which can be something of an ordeal, according to an executive in charge of operations and management (O&M) for one of the independent tower companies, who did not want to be named.
“Especially in states like Uttar Pradesh, Bihar, Jharkhand, etc., the tenant will siphon off the diesel meant for the generator, or not let the towerco manage fuel, etc.,” he said. “Others will hold us (towerco) to ransom, asking for a job for their relatives as security guards for the towers or an extra payment outside the contract we have signed with them, after construction has begun. Last year, we got stuck in the middle of a feud among neighbours in Mewat (Haryana). Both houses were adjacent to each other and we went with one. The neighbour wanted to rent his roof so the two families started fighting with each other for the rental revenue,” the representative said.
Once the towerco gets permission to build on a site from the owner, it has to get various clearances, environmental and municipal, before construction can begin. The wireless planning and coordination wing of DoT then checks whether there will be interference with other wireless users, such as aircraft, the military or satellites.
Local municipal bodies are not always keen to grant permission.
“They will suddenly introduce a tax or raise an existing tax for the towers, after it is built and in use,” said a senior project manager for one of the larger towercos, who asked not to be named. “They see the towerco as part of the telecom business that has a lot of money and they want to get whatever they can.”
In April 2011, the Telecom Regulatory Authority of India (Trai) recommended that the central government nominate a DoT joint secretary to deal with refusals or the setting of conditions by local authorities.
Only once the permissions are granted can the construction materials start rolling in. Soil strengthening must be done first, a two-week process especially important in windy areas or earthquake zones. Then the telco moves in to install its equipment. There is a clear demarcation of powers and responsibilities between the towerco and telco: maintenance of “passive infrastructure”, including the structure, the equipment-cooling system and power supply, security and access, and legal issues among others, are taken care of by the towerco. The “active infrastructure”, which includes the electronic equipment, antennae, etc., are the domain of the telcos.
Despite the difficulties, towers have sprouted on rooftops and erupted in the middle of fields with surprising speed.
“If there are no unforeseen delays, a ground base station takes around 60 days to build and a rooftop takes around 45 days,” said the O&M executive cited above. “In 2009-10, we were building as many as 1,500 towers a month—some 18,000 towers in the year, which was a world record at the time.”
The biggest challenge, however, is not in the building of a telecom tower, but in its maintenance: the rising cost of fuel and the need to be environmentally responsible, as well as reassuring the public that its structures are not health hazards, is proving a sticking point for the towercos.
Towers have a significant carbon footprint. Five years ago, the telecom industry overtook Indian Railways briefly as the country’s largest consumer of diesel, estimated at more than 2 billion litres a year, according to a 2011 report by environmental group Greenpeace. That made for an operational expense of Rs.6,500 crore, apart from other infrastructural costs, or 30% of the sector’s revenue from off-grid services in a year.
The telecom sector was responsible for 5.2 million tonnes (mt) of carbon dioxide emissions (out of 13 mt overall) annually—over 2% of India’s total greenhouse gas emissions, the report said.
Last year, Trai directed all towercos to reduce their dependence on diesel and cut carbon emissions by running at least half of all rural towers and 20% of urban towers on hybrid power by 2015. The problem for the towercos is that due to an unreliable grid, and the remote locations of some towers, more than 60% of the towers currently depend solely on diesel for power generation. The rise in diesel prices, by more than 32% since January 2009, is something towercos can’t afford to ignore. And to make matters worse, on average, approximately 15% of the diesel bought is pilfered at some stage, the project manager said.
This is reason enough for towercos to innovate and find alternatives to the diesel generator.
“Power generation is the major focus area for the towerco, as it has a direct impact on the telco’s operational expenditure,” said a Mumbai-based telecom analyst working with a multinational brokerage firm.
Plans are already afoot. The Tower and Infrastructure Providers Association is working on a model where towercos partner with renewable energy service providers to make a viable business case for both. The idea is that the towerco buys energy from a renewable energy provider in a certain rural area. The renewable energy provider will sell any surplus to the neighbouring area (for ATMs or cybercafes) and the towerco would guarantee the renewable energy provider a certain amount of revenue. Initial work on the model has started at around 10,000-15,000 towers.
Towercos are also testing renewable energy sources themselves. But solar power, biogas, wind or hydroelectric power, fuel cell technology and even compressed natural gas all have their own problems, according to the O&M executive. Apart from the additional cost, which is in the range of Rs.20 lakh per tower, for the secondary source of energy like solar panels there are maintenance and weather issues, he added.
On the other hand, small innovations have made a difference.
“A lot of work has gone into the development of batteries to make them charge faster and last longer,” the O&M executive said. “This makes them the primary power source rather than the secondary as has been the case.” Excess energy, which was previously wasted, is stored in a 12-hour battery, reducing the Rs.50-60 per kilowatt running cost of a generator to Rs.15, the O&M executive explained.
The future for towers
The towercos are increasingly becoming interested in innovations such as these: On 14 March, Indus announced it would be replacing diesel generators with batteries at 20,000 of its 110,000 towers by next year. The move came after the company stopped using diesel for power back-up in 5,000 towers, saving 3.6 million litres of the fuel a year.
Bharti Infratel already generates as much as 5 million units of solar power every year. The company’s Green Towers P7 project, launched in 2007, aims to reduce diesel consumption by around 58 million litres per year. So far, variable speed generators have been deployed at 3,500 sites, reducing annual diesel consumption by 1.2 million litres and almost Rs.5 crore. Of late, towercos have been worried by another issue—the accusation that radiation emanating from them may pose a public health hazard. In September, the Indian government issued new rules regarding radiation. While it’s not clear whether the radiation causes cancer, the government has prescribed limits that are one-tenth of existing ones dictated by the International Commission on Non-Ionizing Radiation Protection. In September, DoT mandated that telcos submit self-certification regarding radiation compliance to its telecom enforcement, resource and monitoring cell.
The operators are being forced to follow the new rules. Earlier this month, Sibal informed the Lok Sabha that until 30 November, a total of 83 towers of various operators were found to be flouting radiation norms. “Notices have been issued to the concerned telecom service providers,” Sibal said.
According to the rules, if a site (mobile tower) fails to meet radiation norms, the service provider could be penalized Rs.5 lakh. Strictly speaking, radiation is not the responsibility of the towerco; it is emitted from the equipment provided by the telco. One key innovation that could make all the difference to both the power and the radiation issues, and would make the move into rural markets much easier, is the creation of the “micro BTS” —antennae that can be erected on a street lamp pole and support one or two carriers to cover a smaller area. The micro BTS requires almost no additional cooling and can, therefore, run on one-tenth of the power needed by a larger tower.
While continual growth of the tower sector has led to much scrutiny, their ubiquity and importance to the economy has forced a significant amount of innovation and research that can be tapped by other industries, experts said.
“There is tremendous demand for data in India and the tower can become the focal point for delivery of broadband, at least outside the urban markets,” said ATC’s Sharma. “The tower can be connected to the ATMs and even computer kiosks. As with the tower, you get both communication capabilities and power, which are difficult to find in rural areas.”